Press Release

6 March 2009

McGrigors warns on risk of strong-arm debt collection tactics

National law firm McGrigors is seeing an increase in creditors threatening to petition for the wind-up of businesses owing money, as a tactic to persuade them to pay.

 

During a recession creditors are often quick to redouble their efforts to recoup outstanding bills, even for small amounts or short delays in payment. One way of coercing the payment of a bill is to threaten to petition for the wind up of a business.

 

However, winding up is intended to arrange a fair distribution of assets of an insolvent concern among its creditors and is not intended for use as a debt-collection tool for one creditor. Nor is it intended for cases where there is a dispute over the account. Companies who understand its application should be able to protect themselves should a creditor inappropriately try to use this approach to obtain payment of a bill.

 

Craig Connal QC, partner at McGrigors, said: "In a downturn it is understandable that creditors will want to obtain payment as fast as possible but they should beware of using inappropriate methods for collection which could ultimately leave them open to costs or damages.

 

“We have seen some cases where debts were known to be in dispute and others where monies were clearly not due, for example where a 60-day period for payment had not yet elapsed, yet winding-up was threatened. There are no winners in such situations. Some are simply trying to take advantage of the fears businesses have in difficult times. "Businesses that receive a threat to wind up must not panic as it does not necessarily mean the business is going to be closed down. In the current climate it is understandable to be concerned but take legal advice immediately. If the petition to wind up is being threatened inappropriately, the company is in a strong position to defend itself, however it is essential to resolve the situation quickly so that a petition does not become public through advertising or reaching court. A delay in resolving the threat could leave businesses in ruins."

 

Businesses, particularly those which - like many - are juggling their finances, must ensure they are prepared should they receive a letter of intention to petition for wind up of the business, known as a statutory demand. It is vital that any such notice is acted upon immediately, so all staff, from receptionists to finance staff, who receive incoming material at a company should be taught to recognise a statutory demand and know to immediately escalate it.

 

Regardless of any deadline given, a statutory demand should be dealt with as a matter of extreme priority. If ignored, there is a risk that the company threatening wind-up may press on and may advertise in the local press its court petition for wind up, resulting in conceivable damage to a company's position if such an advert appeared.

Andy Peat

Business Development Director
Telephone: +44 (0)20 7054 2710
Mobile:  +44 (0)7894 835 386
Email: andy.peat@mcgrigors.com

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